Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil AA+/Stable’ rating on the Rs 300 crore non-convertible debentures (NCDs) of Crompton Greaves Consumer Electricals Ltd (CGCEL).

 

Crisil Ratings has withdrawn its rating on the NCDs of Rs 300 crore, as these have been redeemed. This is line in with its policy for withdrawal of ratings. (Refer to 'Annexure - Details of Rating Withdrawn').

 

Revenue has grown by nearly 10% to Rs 4,034 crore in the first half of fiscal 2025 and is expected to grow at a healthy pace in the medium term. Revenue grew by around 7% to Rs 7,325 crore in fiscal 2024, and operating margin stood at 9.8%, amid weak rural demand. The margin has improved to 10.8% in the first half of fiscal 2025, due to price hikes taken across categories. It is expected to improve to around 11% in fiscal 2025, driven by price hikes taken in first half and healthy festive demand.

 

The financial risk profile is marked by a projected networth of over Rs 2,200 crore and negligible gearing of around 0.1 time as on March 31, 2025. Term debt of Rs 300 crore (in the form of NCDs) will be paid in July 2025. Total outside liabilities to tangible networth (TOL/TNW) ratio is likely around 1 time as on March 31, 2025. Debt protection metrics are likely to remain strong, aided by healthy annual cash generation. Interest coverage ratio is projected to be over 15 times for fiscal 2025. The company had cash equivalent of Rs 543 crore as on September 30, 2024. Consolidated bank limit of 420 crore was largely unutilised over the 12 months through November 30, 2024.

 

The rating continues to reflect the diversified business risk profile of CGCEL, its established brand, leading position in multiple consumer durable segments and strong growth prospects, fuelled by focus on brand building and consumer sentiments. The rating also factors in the healthy financial risk profile, aided by steady cash accrual and prudent working capital management. These strengths are partially offset by exposure to intense competition in the domestic consumer durables sector, susceptibility to volatility in input prices and impact of government policy changes related to energy efficiency norms.

Analytical Approach

Crisil Ratings has combined the business and financial risk profiles of CGCEL and its subsidiaries. Crisil Ratings has amortised goodwill of Rs 779 crore, generated at the time of demerger (2016) of CGCEL from Crompton Greaves Ltd (CGL) over 10 years from the date of the demerger. It has also amortised goodwill of Rs 506 crore and brand name value of Rs 1,163 crore on account of acquisition of Butterfly Gandhimathi Appliances Ltd (BGAL) over 10 years from fiscal 2023.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

• Strong business risk profile, supported by revenue diversity and established brand: The company operates in four key business segments: fans, lighting, pumps and appliances. The electric consumer durables segment, comprising fans, pumps and appliances, accounted for 77% of revenue in the first half of fiscal 2025, while lighting constituted 12% and balance is contributed by BGAL. Diversified value offerings in each segment have helped the company register consistent growth over the years.

 

A strong distribution network and steady pace of product launches have helped the company maintain steady market share across categories, with fans at 26%, pumps (18%), light-emitting diode (LED) segment (9%), geysers (11%) and air coolers (5%). Furthermore, the premium portfolio and cost-reduction initiatives have lent stability to revenue and profitability. Strong focus on innovation and premiumisation and ability to launch fresh product variants and devise new product categories will continue to benefit the business.

 

• Healthy growth prospects, backed by focus on brand strengthening and pan-India distribution network: An established brand, wide product portfolio and strong distribution reach have helped the company maintain a leading position in the domestic fans and residential pumps segments and gain significant share in water heaters. CGCEL is also the fourth-largest lighting company in India. Further, acquisition of BGAL will help the company achieve its long-term strategic goal of becoming a leading player in the appliances segment through a complete portfolio of small kitchen appliances.

 

• Strong financial risk profile: The financial risk profile is marked by a projected networth of over Rs 2,200 crore and negligible gearing of around 0.1 time as on March 31, 2025. Term debt of Rs 300 crore (in the form of NCDs) will be paid in July 2025. Total outside liabilities to tangible networth (TOL/TNW) ratio is likely around 1 time as on March 31, 2025. Debt protection metrics are likely to remain strong, aided by healthy annual cash generation. Interest coverage ratio is projected to be over 15 times for fiscal 2025.

 

Weaknesses:

• Exposure to intense competition in the domestic consumer durables sector: Competition in the domestic consumer durables sector has intensified over the past few years, with players such as Havells India Ltd establishing a strong consumer connect and brand recall. CGCEL faces competition from organised and unorganised players, though the price differential enjoyed by the unorganised sector has reduced post implementation of the Goods and Services Tax.

 

• Susceptibility to volatility in input prices and government policy changes related to energy efficiency norms: Prices of key inputs such as copper, aluminium and steel tend to be volatile. Raw materials and purchases of traded goods account for 68-70% of sales. The prevalent geo-political issues and overall inflationary environment lead to uncertainty in commodity prices. Furthermore, in order to counter competition and the weak demand scenario, the company needs to absorb part of the increase in input prices or pass it on with a lag, which constrains profitability. Changes in government policies has led to an increase in the cost of production of fans, to comply with Bureau of Energy Efficiency norms. However, the company has rationalised its cost structure by adopting an asset-light production model, achieving higher economies of scale and taking pricing actions.

Liquidity: Strong

Cash equivalent of Rs 543 crore were held as on September 30, 2024. Bank limit of Rs 420 crore has also been negligibly utilised over the 12 months through November 30, 2024. Healthy annual cash accrual of Rs 500-600 crore will suffice to cover the debt obligation and modest capital expenditure (capex).

Outlook: Stable

The credit risk profile of CGCEL will continue to benefit from its strong market position across product categories and established brand. The financial risk profile will strengthen, driven by healthy annual cash generation and progressive debt repayment.

Rating sensitivity factors

Upward factors:

• Double-digit revenue growth, with cash accrual of over Rs 1,000 crore and market leadership across multiple large product segments, enhanced product diversity and expansion of market share, strengthening the business risk profile.
• Sustenance of the robust financial risk profile with improvement in debt protection metrics and steady-state debt to EBIDTA ratio of 0.3-0.5 time
• Sustenance of healthy cash surplus

 

Downward factors:

• Significant decline in revenue and operating margin below 7%, with reduced market share in key product segments and commodity prices, impacting input cost
• Sizeable debt-funded capex or acquisition, leading to moderation in debt protection metrics and gross debt to Ebidta ratio exceeding 2.25 times
• Substantial dividend payout or share buyback, reducing liquidity to less than Rs 250 crore

 

Environment, social and governance (ESG) profile

Crisil Ratings believes that the ESG profile supports the already strong credit risk profile of the company. The consumer durables sector has a moderate environmental and social impact, driven by raw material sourcing strategies, waste-intensive processes, and direct impact on the health and well-being of customers.

 

Highlights:

• The company is focusing on increasing the percentage of renewable and clean energy in the overall energy mix. It has generated 9,211 kilo watt hour (KWH) of renewable energy in fiscal 2024.
• It is dedicated to water conservation and has converted all its units to the zero liquid discharge systems, and has saved 39,169 kilo litre of water in fiscal 2024.
• Increased material efficiency has reduced industrial waste, raw material usage, waste segregation and greenhouse gas emissions. The company has recycled 17.6 lakh kg of solid waste.
• It is committed to ensure safety and security of its employees. All customer grievances have been addressed.
• The governance structure is characterised by effectiveness in board functioning, with 78% of the board comprising independent directors, enhancing shareholder wealth, presence of an investor grievance redressal mechanism and extensive disclosures.

 

ESG is gaining importance among investors and lenders. CGCEL’s commitment will play a key role in enhancing stakeholder confidence, given the shareholding by foreign portfolio investors and access to both domestic and foreign capital markets.

About the Company

CGCEL was demerged from CGL with effect from October 1, 2015, and is the absolute owner of the Crompton and Crompton Greaves brands. It earlier operated as the consumer products business unit of CGL. The company manufactures and trades in products such as fans, lighting systems, domestic pumps and appliances, primarily in India. It also exports to South Asia, the Middle East and Africa, on a small scale. Its facilities are at Bethora and Kundaim in Goa, Baddi in Himachal Pradesh, Ahmednagar in Maharashtra, and Vadodara in Gujarat.

 

CGCEL acquired BGAL in March 2022, to strengthen its product portfolio in the kitchen appliances segment. It holds 75% shareholding in BGAL.

Key Financial Indicators (Consolidated - Crisil Ratings-adjusted)

Particulars	Unit	2024	2023
Revenue	Rs crore	7325	6875
Adjusted profit after tax (PAT)	Rs crore	197	232
PAT margin	%	2.7	3.4
Adjusted debt/Adjusted networth	Times	0.3	0.5
Interest coverage	Times	9.6	7.6

Note: PAT reported by the co;mpany differs by around Rs 245 crore, due to adjustments (amortisation) for goodwill.

Any other information: Not Applicable